The Covid-19 outbreak is causing considerable social and economic constraints. At the same time, market and competitive conditions in Germany and Europe, as well as in the international movement of goods, are experiencing a shock of unimagined intensity.
Many companies find themselves obliged to cooperate and exchange information, to coordinate with and supply competitors and to enter into other restrictive agreements. Even if these measures are aimed at protecting the health and supply of the population, restrictions of competition fall within the scope of the prohibition of cartels. In the future, the reduction of overcapacities and the associated agreements between competitors and restructuring mergers will become increasingly relevant. Crisis-related dependencies and unilateral abusive business practices trigger a need for consumer protection and abuse control.
In view of this circumstances, we outline below the still limited scope for action under antitrust law, point out the possibilities and limits of cooperation between competitors and encourage determined action in these difficult times.
Antitrust law remains applicable
Even in times of crisis, antitrust rules still serve as a general framework for an efficient market economy. Special antitrust legislation or sector specific exemptions are currently not in sight. Thus, anticompetitive price fixing and cooperation between competitors as well as abusive behaviour towards competitors remain prohibited.
However, the European competition authorities of the European Competition Network (ECN) have announced in a joint statement of 23 March 2020 that they will be accommodating the assessment in individual cases during the Corona crisis. In the view of the competition authorities, the competition rules are flexible enough to take account of changing market conditions.
Nevertheless, this does not constitute a carte blanche for competition law infringements. Competition Commissioner Margarethe Vestager recently emphasised at an event that the crisis does not offer a “protective shield” against effective antitrust enforcement. In particular, the competition authorities will take consistent action against those companies that want to profit from the crisis in an anticompetitive manner. The competition authorities in the UK and Poland, for example, have set up special task forces to monitor the prices of food, pharmaceuticals and hygiene products, and in Greece and Italy the first investigations have already begun.
Growing need for cooperation and information exchange between competitors
In order to manage the crisis – especially in the supply and distribution of vital goods and commodities – companies are increasingly dependent on agreements, exchange of information and coordination of their behaviour. Typical scenarios include the following:
- Cooperation of competitors in the food, drugstore products, protective clothing and pharmaceutical industries with regard to procurement, logistics, warehousing and distribution;
- Exchange of information on parameters relevant to competition (including quantities, prices and suppliers or customers) to eliminate bottlenecks in the supply chains and supply shortages of urgently needed goods;
- So-called “structural crisis cartels”, i. e. agreements between competitors to deal with and reduce structural overcapacity (e.g. in the hotel, travel and transport sectors);
- Agreements and collaborations in the area of research and development, for example for the development of a joint vaccine against the Covid-19 virus.
Prohibition of cartels as the relevant yardstick
The starting point for the assessment under competition law is the prohibition of cartels (Section 1 GWB, Article 101 TFEU). Restrictive agreements between undertakings, decisions by associations of undertakings and concerted practices are, subject to justification (see below), also prohibited in times of crisis. The mere pursuit of general interest objectives (health protection, security of supply, etc.) does not eliminate an actual restriction of competition. Non-economic objectives are generally not taken into account in the question of whether competition is restricted – European and German cartel laws do not weigh up the interests involved.
Flexible reaction and exemption options
However, the antitrust law assessment opens up far-reaching possibilities for the justification of restrictions of competition (Section 2 GWB, Article 101 (3) TFEU and block exemption regulations). If a restrictive agreement or cooperation between competitors makes, for example, an efficient supply of the population possible through an improved distribution of goods, then there are likely to be efficiency advantages eligible to offset the restriction of competition. Such measures are exempted from the prohibition of cartels by law and can be implemented immediately. Agreements to rationalise or reduce structural overcapacity in a market may also be exempted as so-called “structural crisis cartels”. A coordinated and planned reduction of capacity with the participation of the entire industry can be considered in times of crisis when there are considerable restrictions on use and losses over a longer period of time. For all measures, a case-by-case analysis allows the dynamics of events and the unpredictability of further developments to be taken into account appropriately.
The antitrust authorities will exercise restraint with regard to urgently necessary and temporary measures within the scope of their powers of intervention. Nevertheless, it can be assumed that the competition authorities will closely examine agreements and concerted practices based on Covid-19 to ensure that the crisis is not used as a mere cover for non-essential illegal collusion and agreements.
Excessively high prices and abuse control by the cartel authorities
The prices for disinfectants and respiratory masks on online platforms, some of which have skyrocketed significantly, illustrate the relevance of the ban on abuse (Sections 19, 20 GWB, Article 102 TFEU). The price level control under antitrust abuse law prohibits companies with market power from demanding fees and conditions that are significantly above the market level.
In this context, the general legitimacy of maximum prices imposed by manufacturers on wholesalers and by wholesalers on retailers must be pointed out. This would enable manufacturers of urgently needed hygiene products or pharmaceuticals to prevent price excesses at the downstream distribution level. At the same time, it must be ensured that these vertical agreements do not contain prohibited hard-core restrictions (e.g. resale price maintenance, i.e. binding guidelines on the prices at which the products may be resold to final customers).
In addition, dependencies may also arise for the first time during the course of the Corona crisis, making it necessary to assess them in accordance with the abuse and non-discrimination prohibition. The disruption of supply relationships, the refusal to supply certain goods or even the termination of existing contracts can prove to be abusive behaviour if they should endanger the existence of the other company.
Restructuring mergers and the failing company defence
In the field of merger control, the so-called “failing company defence” is a suitable argument for acquiring failing companies or parts of companies threatened with insolvency in order to obtain clearance from the Bundeskartellamt. This defence is based on the lack of causality between the merger and the deterioration of the market structure which otherwise would be a reason to prohibit the merger. If the company in need of restructuring would have left the market as a competitor and its market shares would have fallen to the acquirer, the merger merely anticipates the situation which would have been foreseeable anyway without the merger. The Bundeskartellamt accepts a failing company defence under three cumulative conditions:
- Without the merger, the company to be acquired would be forced to exit the market in the short term because of its economic difficulties;
- there is no alternative that is less harmful to competition;
- the market position of the acquired company would essentially fall to the acquirer even without the merger.
Institutional framework and procedural delays
The competition authorities are already making efforts to ensure efficient antitrust enforcement that takes account of the particular challenges of the crisis. However, it is already foreseeable that there will be procedural delays at institutional level. The timing of merger control notifications should be adjusted accordingly. In France, Denmark and Austria, the antitrust authorities have already temporarily suspended the deadlines, inter alia, in merger control proceedings. The Italian antitrust authority allows companies to suspend payment of antitrust fines in times of crisis.
The Bundeskartellamt considers its ability to work to be ensured at the moment. In order to maintain communication in times of a ban on contact and home office the Bundeskartellamt has set up a central e-mail inbox for each Decision Division. On the other hand, meetings and investigations cannot take place in view of the current contact restrictions.
At European level the Commission has set up a special website on the application of the antitrust rules in Corona times. For companies that intend to cooperate, a separate e-mail inbox offers the possibility of informal contacts and guidance by the Commission.
In proceedings before the cartel tribunals the judges are currently making extensive use of the possibility to cancel or postpone deadlines, so that delays in court proceedings are also becoming apparent.
The implementation of the 10th amendment to the German Act against Restraints of Competition (ARC) is also likely to be delayed in view of the fact that crisis management is now a priority.
Even in the current Corona crisis, companies must comply with antitrust regulations. However, the toolbox of antitrust law opens up numerous possibilities in order to enable necessary cooperation for the supply of the population, in the field of research and development or by reorganization mergers of distressed companies. A careful self-assessment and – if appropriate – early contact with the competition authorities is recommended. These have signalled that the current market and competitive conditions will be taken into account.
Raue’s antitrust law team would be happy to answer any questions you may have and will keep you informed about ongoing developments.
(26 March 2020)